Two Case Summaries – COMI and a Rejected Administration Order Application

I confess that COMI cases have always left me cold, but I have tried to extract some interest from this case that appeared to me to follow principles set down in earlier cases, which Purle J usefully summarises.

In short, the court decided that the debtor’s COMI was, at all material times, Germany – the debtor purported to trade as a photographer in England (he had practised as a notary in Germany), albeit that he did not own a camera and the judge stated that the main purpose for taking golfing tours was recreation, not photography; the judge also commented that the photography business was not at the root of the insolvency, which was caused by his previous German business activities – with the consequence that the Bankruptcy Order was annulled. However, what I found interesting was that the debtor’s original bankruptcy petition was opposed by the OR – in fact, it was a second petition, as the first Order was annulled on the application of the OR on the grounds that the debtor had provided false information – but that opposition, and a later appeal, failed. This annulment application was brought by the German Bank, owed some Euros3 million, which contended that the debtor did no more than create the illusion of an English COMI. It is clear that this time the court was provided with far more evidence and, whilst it is a shame that the OR’s earlier objections were unsuccessful, it is comforting to note that at least the OR remains alert to potential abuses. It was also interesting to note that, in this case, the bankruptcy was discharged automatically on 17 June 2011, but notwithstanding this, as S282(3) provides, the Order was annulled.

A bit of an old case this one that I’d not covered before, as I don’t think it generates any new thoughts, but perhaps it provides a warning for IPs (or more correctly of course, directors) seeking certain Administration Orders.

The application was sought on the grounds that there was likely to be a better result for creditors than liquidation. There was a proposed pre-pack to a company owned and controlled by an employee, Mr Harrison, and there was also an extant HMRC winding-up petition.

Purle J was “not at all happy with the history of this company” (paragraph 2). It seems that Harrison’s company had already stepped well into the frame – Harrison’s company’s bank account had been used to receive the main customer’s payments and to discharge company debts including wages, the argument being that there was a risk the main contract would be lost, if this were not done. “Another construction that can be put on what happened is that Mr Morrison and Mr Harrison effectively put the prepack in place before the administration occurred, thus pre-empting the court’s decision” (paragraph 3).

Purle J commented on the proposed administrator’s “very full witness statement containing all the SIP16 material” and that the proposed administrator had “reached the conclusion, no doubt genuinely, that almost any sale is better than a liquidation because the goodwill will in his professional judgment realise nothing on a liquidation, especially as the relationship between the main customer and Mr Harrison’s company is already in place” (paragraph 5). However, it seems that Purle J was sceptical about the £5,000 round sum paid to Harrison during the post-petition period and wished to see that, and other post-petition transactions and activity, investigated. “Proper consideration of those transactions may also reveal that the company’s goodwill has already been arrogated in whole or in part to Mr Harrison or his company, giving rise to a claim for payment or compensation for that goodwill” (paragraph 6). Despite commenting that “there is evidence of the usual quality that the result of an administration will be better than a liquidation” (paragraph 7), the judge concluded that, in the interests of conducting such investigations, a winding-up order be made that day.